Interest rate cut weakened by geopolitics By Reuters

A look at the day ahead in European and global markets from Ankur Banerjee

Optimism about a future U.S. interest rate cut was tempered by jitters about what economic data will show in the coming weeks, skyrocketing expectations from AI darling Nvidia’s (NASDAQ: ) earnings and evolving Middle East tensions.

That left markets reeling and falling, with the yen nearing three-week highs, the dollar steady but near 13-month lows and Asian shares down 0.42% on Tuesday after Monday’s highest high level in a month.

Oil prices fell after rising in the previous session on supply concerns, while gold is nearing a record high reached last week on safe-haven flows.

Futures indicate European stock markets are also set for a subdued open, with London shares returning from a holiday on Monday.

Investors await key economic data this week, including EU inflation on Friday, for signals on the European Central Bank’s policy path when it meets on September 12, where traders have broadly priced in a 25 basis point rate cut .

Nvidia’s earnings on Wednesday will set the tone for a potential AI rally and improve risk appetite now that markets are set for rate cuts.

Anything short of a stunning growth forecast will likely rattle investor confidence, but until then, markets will be choppy and choppy. The focus will be on Europe’s tech stocks, after the tech index fell 1% on Monday.

Another thing to watch will be how European markets react to weak earnings from Temu owner PDD Holdings, which highlighted weak demand from Chinese consumers, wiping out $55 billion in market capitalization.

European luxury companies have also been hit by reduced spending by Chinese consumers.

The US personal consumption expenditure price index – the Fed’s preferred gauge of inflation – will be released on Friday and will be closely watched, especially after Fed Chairman Jerome Powell all but confirmed a rate cut in September.

Markets are only concerned with the size of the cut – will it be a 25 basis point cut or a bigger 50 basis point cut next month. Traders are pricing in 100 bps of easing for the rest of the Fed’s three meetings this year. The data will decide where the Fed goes.

Key developments that could influence markets on Tuesday:

Economic Events: Germany Q2 GDP details

(By Ankur Banerjee; Editing by Jacqueline Wong)